Navarro's Broad Market Outlook: Dalio Dalliance

Forget about reading my column this week and skip right over to Barron's and read the interview with Ray Dalio.  The highlights:

• The current dollar strength is ephemeral and it will fall relative to the Asian currencies over time as Korea, China, et. al. stop buying so many U.S. bonds.
• The euro has peaked and economic stagnation on the snooty continent is the watch word.
• Commodities will be the place to be as the developing nations are going to churn them up.
• Oil is just resting and will be over $100 a barrel within a year - pure supply and demand.
• The U.S. equity markets are over the hill.  Go East, young man…as far as you can.

All in all, not a pretty picture for a U.S.-centric stock market investor who favors the long side.

This Week's Market Movers

There's lots of data coming out this week - CPI and PPI, Retail Sales, business inventories, industrial production, housing starts, and consumer sentiment.  Still, I don't really expect any of these reports to goose the markets much as we are in the summer doldrums and none of the reports are likely to surprise.  It will be interesting, however, to see if consumer sentiment has bounced back up to support the now bullish bias in the markets.

Portfolio Musing

Zila didn't exactly set the world on fire with its earnings report.  Revenues were up but marketing and testing costs were up even higher so the loss was larger.  Call me stupid, but I stilllike this stock.

Opened small positions in AMKR (semiconductors) and ADSX (security) as purely technical plays, with at least ADSX being a non-cyclical. 

Hedging Your Bets With Matt Davio: Elmer Fudd

Once Again the GreenMartian spoke to Congress this week. and I had no idea what the man was talking about.  Sometimes, when I am watching Elmer Fudd with my children on Looney Tunes, I laugh to myself that GreenMartian is not much different than Fudd. Why can't he speak normally?  I just have to believe that ultimately, Greenspan will be remembered poorly in the history books - as in 2000, his perspective on the economy seems out of touch with reality.

As for this week's “non-action,” it was a continuation of the pause we have been in for some time. I expect some resolution to the upside/downside direction over the next few weeks.

Check out the chart below if you want a longer term perspective on Fedspeak.  Note the lower highs as we move through time in the bull market in bonds.  But there just isn't much room left at the bottom, which is why a lot of folks think we are going to start a bear cycle in bonds.

Rate Cycle:  Lower Lows, Lower Highs

Peter Navarro is a business professor at the University of California-Irvine (www.peternavarro.com).  Matt Davio is a managing partner at the hedge fund, Infinium Partners, and be contacted for hedge fund services at infinium@peternavarro.com.

DISCLAIMER: This newsletter is written for educational purposes only.  By no means do any of its contents recommend, advocate or urge the buying, selling, or holding of any financial instrument whatsoever.  Trading and investing involves high levels of risk.  The authors express personal opinions and will not assume any responsibility whatsoever for the actions of the reader.  The authors may or may not have positions in the financial instruments discussed in this newsletter.  Future results can be dramatically different from the opinions expressed herein.  Past performance does not guarantee future performance.